For many independent RIA owners, the decision to sell to a larger organization stems from a desire to achieve new levels of growth. And while that did help drive Arax Investment Partners' acquisition of Schechter Investment Advisors, the investment arm of a third-generation wealth advisory and financial services firm in Birmingham, Michigan, that wasn't the only consideration.
"I had a lot of my personal net worth in the business, and there was an opportunity to diversify some of that risk all being significantly in one asset," Marc Schechter, CEO of Schechter Wealth Management, told InvestmentNews.
SIA's growth to a billion dollars in AUM had been relatively easy, but Schechter says the path from $1 billion to $3 billion – and on to the roughly $4 billion at the time of Arax's announced deal to acquire SIA in June – felt less straightforward. Over time, he found many aspects of running and building a multibillion-dollar AUM business started to take away from his true passions.
"I'm more passionate about working with the clients, and managing a key set of a smaller group of leaders," Schechter says. "It felt like I was spending too much time on a lot of non-core work aside from client advice and guidance, which is what I love to do."
Several other strategic consolidators and PE firms had previously approached him with an interest in adding SIA as an investment arm within their already sizable networks. But compared to some of those might-have-been deals, Schechter was more intrigued by Arax's shared commitment to treating clients well.
To be sure, selling to a newer player in the M&A space comes with certain risks. But to Schechter, the idea of being an early participant in Arax's strategy – which has since added Summit Wealth Strategies in Missouri, while its partner firm Ashton Thomas Private Wealth acquired Kobo Wealth Conservancy in Honolulu – also made it compelling.
"If we're experts in alternatives and we can help them do better things for their clients, somebody might be bringing in a tax group that can help us more with some tax planning aspects," he says. "I just really believe in the synergies that are going to come from a lot of groups coming together."
Because of its high-touch approach to serving clients, Schechter says SIA has been a lower-margin business than some of its peers, though it makes up for that through healthy client retention as well as the amount of business it's able to win.
"We've been getting a ton of referral business. We're not doing seminars. We don't have an advertising budget," he says. "We just put all our investment into servicing our clients, [and] hiring great people to provide great experiences."
The firm also places a heavy emphasis on alternative investments for its high-net-worth and UHNW clients, with up to 35% of their assets placed in alts. That requires a high degree of due diligence and compliance, which Schechter expects to get support on as part of the Arax network.
"I think there's not enough advisors out there who have invested the time to learn and understand [alternative investments]," he says. "The alternatives space is not what it was 20 years ago. It's less expensive to get in, it's more tax-efficient than it used to be. There's more liquidity than there used to be."
By staying on as a minority stakeholder and a managing director at SIA, Schechter says he has been able to stay active and involved. The decision to retain some equity has proven fruitful as the past few months have seen continued growth at the firm, according to Schechter.
Beyond SIA, Schechter says his firm's life insurance and estate planning business, which was not part of the Arax deal, has enjoyed "tremendous success" from its B2B2C model, which it launched around a decade ago.
"We've got other professional investment or insurance advisors that come to us with their sophisticated clients, when they're looking for estate planning and life insurance strategies, and we share revenue with them," he says. "We haven't built the revenue and EBITDA that I believe we can still achieve, so I think it was just premature for us to sell that business."
More broadly, Schechter says he has a "bullish outlook" on the RIA space. Despite having existed for decades to now represent nearly $145 trillion in AUM at the federal level, according to the Investment Adviser Association, he argues a lot of people and institutions are still not completely independent, which means those who are able to put their clients' needs first will be poised to come out ahead.
"It's going to be, I think, another 10 to 20 great years for the RIA channel, and I think there's going to be more and more competition," he says. "I think it's the right place for the client."
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